Union Trustee Co of Australia Ltd v Commissioner of Taxation

In this appeal, which comes to this Court pursuant to s. 24 (4) of the Estate Duty Assessment Act 1914-1957 Cth, the appellants, as the "administrators" of the estate of John Joseph Luddy, contend that the respondent's assessment of estate duty in respect of the deceased's estate is excessive. In particular they claim that by reason of the provisions of s. 8 (5) of the Act, duty was not assessable or payable upon so much of the estate as passed under the ultimate residuary disposition made by the deceased's will.

By his will the deceased gave devised and bequeathed unto and to the use of his trustees the whole of his estate upon trust to pay his funeral and testamentary expenses, his just debts and all probate, death and estate duties and all other duties payable to any State or federal authority in consequence of his death. Thereafter he directed his trustees to stand possessed of the balance then remaining upon trust to retain and/or invest the same in accordance with the terms of his will and to permit his wife, the female appellant, to have the net profits and income therefrom free of all duties during her lifetime for her use and benefit absolutely. Subject thereto the deceased purported to declare a general charitable intention with respect to his residuary estate and he directed his trustees to hold that estate: "Upon trust for such one or more charitable and/or religious institutions in Queensland having among their purposes the care and comfort and maintenance of elderly and/or aged people as my wife Ethel Margaret Luddy shall by deed or will appoint to be expended by such institutions so appointed on the care and comfort and maintenance of elderly and/or aged people in such manner as such respective institutions shall in their absolute discretion think fit and in default of such appointment by my wife and in so far as such appointment shall not extend I direct my trustees to hold my residuary estate or such portion thereof as shall not be appointed by my wife as hereinbefore provided as the case may be upon trust to retain and/or invest the same in the names of my trustees and to hold the same and the investments representing the same in perpetuity upon trust to pay and divide (but subject as hereinafter provided) the net annual income therefrom to and/or among one or more charitable and/or religious institutions in Queensland having among their purposes the care and comfort and maintenance of elderly and/or aged people as my trustees shall in their absolute discretion think fit such payment and division to be in such manner and at such time and in such proportions as my trustees shall in their absolute discretion think fit and any moneys so paid and divided to be expended by such institutions in the care and comfort and maintenance of elderly and/or aged people in such manner as such respective institutions shall in their absolute discretion think fit and I further expressly declare that all matters in respect to the institutions to benefit and the amount of each respective benefit and the method of payment thereof and generally all matters in relation thereto shall be in the absolute discretion of my trustees and my trustees shall be under no obligation regarding the expenditure of such moneys in respect to such institutions."

The testator died on 1st August 1958 leaving his wife surviving him but, for what it is worth, no appointment pursuant to the earlier provisions of the quoted clause has been made.

It is the appellants' primary contention that these provisions of the will constituted a devise or bequest of part of the estate of the deceased "to or for the benefit of a public benevolent institution" (or institutions) or, "for the establishment and maintenance of a fund for the purpose of providing money for the benefit of" a public charitable institution (or institutions) (s. 8 (5) (b) (iii) and s. 8 (5) (c) (i)). The alternative contention rests upon the provisions of the second paragraph of sub-s. (5) (c), that is, that the clause constituted a devise or bequest of part of the deceased's estate for "the establishment and maintenance of a fund for the purpose of providing money for the relief of persons in necessitous circumstances in Australia". It will be observed that the ultimate residuary gift contains two sets of trusts. In the first instance the residuary estate is to be held upon trust for such one or more institutions of the specified character as the testator's widow may by deed or will appoint. But in default of any such appointment and in so far as any such appointment shall not extend, it is to be held by the testator's trustees upon the trusts declared in the latter part of the quoted provision. The latter, or second set of, trusts envisage the retention of the residuary estate, or some part thereof, in the hands of the trustees and the application of the net annual income for the purposes declared. The second set of trusts is alternative or complementary to the first and the appellants' primary contention must fail unless it appears that, whether the power of appointment be exercised or not, the institutions which will benefit will be public benevolent institutions. I should add that the argument upon the appeal proceeded on the basis that the disposition made by these provisions of the will was valid and effective and, since no suggestion to the contrary was made, it is upon that basis that I proceed to consider the questions which were argued (cf. In re Glyn Will Trusts [1] ; In re Bradbury [2] ; In re Robinson [3] ; and In re Lewis [4] ).

1. [1950] W.N. 373. 2. [1950] W.N. 558. 3. [1951] Ch. 198. 4. [1955] 1 Ch. 104.

The appellants' primary argument was mainly concerned with the essential nature and characteristics of a "public benevolent institution" and reference was made to a number of cases including Perpetual Trustee Co. Ltd. v. Federal Commissioner of Taxation [5] ; Public Trustee (N.S.W.) v. Federal Commissioner of Taxation [6] ; Lemm v. Federal Commissioner of Taxation [7] ; Maughan v. Federal Commissioner of Taxation [8] ; and The Little Company of Mary (S.A.) Incorporated v. The Commonwealth [9] . These decisions clearly show that the expression "public benevolent institution" is not a term of art and that it should be understood in the sense in which it is commonly used (see particularly per Starke J. and Dixon J. in Perpetual Trustee Co. Ltd. v. Federal Commissioner of Taxation [5] ). According to this view a benevolent institution is an institution having as its object the relief of "poverty, sickness, destitution or helplessness" or "poverty, distress, suffering or misfortune". These words of definition are not rigid and inflexible but they do convey the general notion of what constitutes the essential attributes of a benevolent institution. Considerable difficulty has, however, been experienced in deciding whether particular institutions should be held to answer to the description of public benevolent institutions. But it is clear that an institution may be a benevolent institution and may yet not be a public benevolent institution. So much plainly appears from the observations of Starke J. in Public Trustee (N.S.W.) v. Federal Commissioner of Taxation [1] where, speaking of the institutions named by the testator in the will then under consideration, he said: "Nor is it, in my opinion, a gift to a public benevolent institution. This Court held, in Perpetual Trustee Co. v. Federal Commissioner of Taxation [2] , that that expression referred to institutions organized for the relief of poverty, sickness, destitution or helplessness. The institutions named by the testator or those which may be admitted to share in the benefaction, do give relief to the needy the sick, and the helpless. But they are private organizations conducted by or in connexion with the Church of England in Australia, and are not founded, organized or maintained by or under or in connexion with any public authority, or managed by its representatives. The expression "public benevolent institution" is not a term of art (see Girls' Public Day School Trust Ltd. v. Ereaut [3] ; Perpetual Trustee Co. v. Federal Commissioner of Taxation [2] ). The denominational homes mentioned in the testator's will or which may be admitted to share in his benefaction are not, in my opinion, within the expression" [4] . Likewise Dixon J. (as he then was) said: "Conceding that a gift to an institution benefiting young children in a way which makes it a charitable or benevolent object may be a valid disposition for charitable purposes, I nevertheless do not think that the institutions it covers are confined to public benevolent institutions of the required description" [5] , whilst McTiernan J. observed that under the terms of the dispositions then under consideration the trustees had a discretion to appropriate part of the trust property to institutions not answering the description of "public benevolent institutions" although he considered them to be charitable according to the legal meaning of the word [6] .

1. (1931) 45 C.L.R. 224. 2. (1934) 51 C.L.R. 75. 3. (1942) 66 C.L.R. 399. 4. (1942) 66 C.L.R. 388. 5. (1942) 66 C.L.R. 368. 6. (1931) 45 C.L.R. 224. 7. (1934) 51 C.L.R. 75. 8. (1931) 45 C.L.R. 224. 9. [1931] A.C. 12. 10. (1931) 45 C.L.R. 224. 11. (1934) 51 C.L.R., at p. 100. 12. (1934) 51 C.L.R., at p. 104. 13. (1934) 51 C.L.R., at p. 106.

The present case differs from most of the earlier cases in that the residuary disposition made by the testator does not specify any particular institution or institutions. In the first place the specification of the institutions which were to benefit was left to the testator's widow and the only limit upon her power to appoint was that the appointment should be in favour of "one or more charitable and/or religious institutions in Queensland having among their purposes the care and comfort and maintenance of elderly and/or aged people". Quite clearly, it seems to me, an appointment might validly have been made, or may still validly be made, in favour of institutions falling within this general description which could not on any view be regarded as public benevolent institutions. The same thing may be said concerning the discretion accorded to the trustees in default of any appointment being made. But it is unnecessary to examine further what I have called the second set of trusts for if the power of appointment was, as I think it was, wide enough to permit an appointment in favour of institutions which do not answer the statutory description, the plaintiff's primary argument must fail.

In advancing their alternative argument the appellants were faced with the fact that the disposition in question does not, in terms, make provision, in any form, "for the relief of persons in necessitous circumstances ". But it was urged - and, I think, with some force - that it is plainly implicit that this was the object of the gift (cf. Attorney-General v. Comber [1] ; In re Lucas [2] ; and In re Coulthurst [3] ). However I shall return to this question after some reference has been made to the form of the relevant legislative provision (s. 8 (5) (c) (ii)).

1. (1824) 2 Sim & St. 93 [57 E.R. 281]. 2. [1922] 2 Ch. 52. 3. [1951] 1 Ch. 193, 661.

When one examines the terms of the sub-section it is seen that they contemplate benefactions of a specified formal character. In terms the exemption is available when property is devised or bequeathed "for the establishment and maintenance of a fund, or to a fund established and maintained" for the specified purpose. The word "maintenance" in the phrase "for the establishment and maintenance of a fund" presents some difficulty but it is reasonably apparent how it came to be included. When, after Chesterman v. Federal Commissioner of Taxation [4] , the Estate Duty Assessment Act was amended, the expression "to a fund established and maintained for the purpose of providing money for use for such institutions, or for the relief of persons in necessitous circumstances in Australia" made its appearance (Act No. 47 of 1928, s. 5 (b)). The reference made by this expression was to any existing fund which had been established for either of the specified purposes and which was, in fact, being applied to, or maintained for, either purpose. This meant that an exemption was not available in cases where the object of a devise or bequest was, not a contribution to an existing fund, but the establishment of a new fund. This anomaly was removed by Act No. 18 of 1942 (s. 4 (b)) by simply inserting the words "as or" before the words "to a fund". But the expression, "so much of the estate as is devised or bequeathed as a fund established and maintained" involved an anachronism. It was this circumstance no doubt which led Kitto J., in Ballarat Trustees Executors & Agency Co. Ltd. v. Federal Commissioner of Taxation [1] to say: "The words "established and maintained", though apt to describe an existing fund, must be given a modified meaning as applied to a bequest of part of an estate "as a fund", and, in my opinion, as so applied they refer to a fund which, according to the terms of the gift, is to be established and maintained for the purpose stated in the sub-section" [2] .

1. [1926] A.C. 128; (1925) 37 C.L.R. 317. 2. (1950) 80 C.L.R. 350. 3. (1950) 80 C.L.R., at p. 353.

The statutory provision remained unaltered until 1957 when s. 8 (5) was inserted in the principal Act in its present extended form. In this form the relevant conditions have been expressed in separate phrases, and in relation to testamentary gifts for the establishment of a fund the words "establishment and maintenance" have replaced the words "established and maintained". The result was, in effect, to put into statutory form the meaning assigned by Kitto J. to the earlier provision. That is to say, it was designed to provide an exemption where a gift was, either, to an existing fund "established and maintained for the purpose of providing money for benefit or relief of the character specified", or, for the "establishment and maintenance of a fund" for such a purpose. "Maintained" in the former phrase is, I think, used merely by way of extension to "established" in the sense that it serves to indicate that the exemption is available only where the fund is one which has been not only established for such a purpose but which, at the time of the gift, is also being "maintained", or applied, for that purpose. "Maintenance", in the second phrase, is used in much the same sense and does not prescribe a requirement that it must appear that the fund is one which will be "maintained" in existence for any definite or indefinite period of time.

Assuming for the moment that the ultimate object of the deceased's bounty was the relief of persons in necessitous circumstances, there can be no doubt that the second set of trusts is designed to create a fund of the required character. To the extent to which they may become operative the fund will remain in the hands of the trustees and the income will be divided among charitable and/or religious institutions of the specified character for use in the manner directed by the will. But what of the first set of trusts? In my view also they conform to the requirement that the gift shall be for the establishment and maintenance of a fund (or funds). The shares of residue are not given for the general purposes of any of the institutions which may be the subject of appointment but are given for a special purpose and, in their hands, will be impressed with a trust to apply (or "expend") their respective benefactions in the specified manner. To my mind there can be no objection to the form of the gift on the score that it was not "for the establishment and maintenance of a fund".

I return therefore to the question whether the ultimate object of the residuary gift was "the relief of persons in necessitous circumstances in Australia". Under either set of trusts the recipient of any benefaction must answer the description either of a "charitable" institution or of a "religious" institution. Additionally, it must be an institution which has as an object "the care, comfort and maintenance of elderly and/or aged people" and, finally, it will be required to "expend" its share on the care, comfort and maintenance of persons in this category. In the face of these considerations is it possible to say that the purpose of the residuary gift was not the relief of persons in necessitous circumstances? I think it is not. Traditionally, the reason for the concern of institutions of the character in question with aged or elderly people is the privation, suffering or distress which results not from age alone but from a combination of age and indigence. Such institutions may provide shelter for the reception and care of such persons or they may minister to the aged in their own homes but whether one course or the other be followed, or whether both be combined, it cannot, I think, be supposed that the only qualification for relief is age. Upon this consideration alone I would be inclined to think that the gift fell within s. (8) (5) (c) (ii). But the matter is carried somewhat further by the fact that the object of the gift is the " care, comfort and maintenance " of elderly or aged people. When one takes into account the form of administration chosen by the deceased and the explicit direction that each benefaction shall be expended for this purpose it is, I think, clear that the deceased's testamentary intention was to make provision for the relief of those elderly or aged people as institutions of the character in question should, in the exercise of the discretion reposed in them by the will, think in need of "care, comfort and maintenance". That being so, it is, I think, impossible to resist the conclusion that the object of the gift was the relief of persons in necessitous circumstances in Australia. Accordingly I am of the opinion that the appeal should be allowed and that the assessment should be varied by treating the ultimate devise of the residuary estate as a devise of part of the deceased's estate which, by reason of the provisions of the sub-section in question, was not liable to estate duty.